Contractor Hourly Rate Calculator

The shop rate is the business

Your shop rate — the hourly billing rate you publish or quietly use when bidding time-and-materials — is the single most important number in your company. It determines whether you pay yourself, whether you keep the lights on, and whether you have anything left over to reinvest. Most small contractors set this number by looking at a competitor's rate and going slightly under. That is how you go broke.

The right way: build it from the bottom up. Start with what each billable hour must cover, add your profit margin, and land on a rate that actually lets the business fund itself and its owner.

The four components

• Direct labor (burdened) — What the tech on the truck actually costs the company, per hour, once taxes, insurance, benefits, and PTO are included. Run each role through the labor burden calculator to get an honest number.
• Overhead share — Annual overhead (office rent, utilities, software, admin salaries, marketing, insurance, legal) divided by total billable hours across all your techs.
• Owner salary share — What you, the owner, need to take home for yourself per year, spread across billable hours. This is NOT overhead. It is not profit. It is your pay.
• Rolling stock / truck cost share — Depreciation, maintenance, insurance, registration, and fuel on your service trucks and trailers, spread across billable hours.

Add those four up and you've got your break-even billable rate — the rate that covers cost but makes zero profit. Nobody should run a business at break-even, so you layer a profit margin on top.

Margin, not markup

This calculator applies profit as a margin (percentage of the gross-out rate), not as a markup (percentage added to cost). Why? Because when you tell customers “we operate at 15% net profit,” that's margin language. A 15% margin on a $100 rate gives the customer a $100 rate and the contractor $15 profit. A 15% markup on an $85 cost would give the customer an $97.75 rate and the contractor $12.75 profit. Same cost, different customer rate.

Worked example

Three techs, each billable 1,600 hours/year: 4,800 total billable hours. Overhead $120k, owner salary $90k, truck cost $18k. Per hour: overhead $25, owner $18.75, trucks $3.75 — $47.50 of fixed costs before the first dollar of tech labor. Add $38 burdened field labor. Break-even: $85.50. Apply 15% margin: shop rate $100.59, which rounds nicely to $100/hr or $105/hr.

If your competitor is at $85, they're either running lower overhead, underpaying themselves, running at zero profit, or all three. Don't race them to the bottom.

Common mistakes

• Using 2,080 hours per tech when you only actually bill 1,600 — undercounts the per-hour cost by 30%.
• Forgetting to include an owner salary line because you're “living on what's left.” That's how you wake up five years in with no personal savings and no retirement plan.
• Pricing at break-even and hoping volume will make up for it. It won't.
• Not recalculating yearly. Overhead creeps. Insurance renewals go up. Software adds seats. Your rate from two years ago probably doesn't cover today's cost base.

What if the market won't pay it?

Then you have real decisions to make: specialize into higher-value work, cut overhead, raise your billable hour target, or accept that your market isn't rich enough to sustain your cost base. What you cannot do is keep running below the calculated rate. That math catches up, and it catches up with compound interest.